3 Pharma Stocks to Watch: Allergan, Valeant, and AbbVie

The latest news in a saga involving Allergan, Valeant Pharmaceuticals, and AbbVie

Jul 10, 2014 at 10:15AM

U.S. stocks yesterday reacted positively to the release of minutes from the Federal Open Market Committee's June meeting, but that is long forgotten this morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.74% and 0.78%, respectively, at 10:15 a.m. EDT. A greater than 1% loss today in the S&P 500 would break a 57-day streak without any daily moves of that scope -- the longest such streak since 1995! The pharmaceutical sector, which has witnessed frenetic deal activity this year, is on investors' radar this morning, thanks to information that broke late yesterday regarding two potential deals: Valeant Pharmaceuticals' (NYSE:VRX) $53 billion hostile bid for Botox maker Allergan (NYSE:AGN) and AbbVie's $51 billion bid for Ireland-based Shire.


Source: Wikipedia.

First, in interviews with the Financial Times and The Wall Street Journal, Allergan Chairman and CEO David Pyott said some shareholders have prodded the company to consider a significant acquisition of its own, even as it wrestles with Valeant Pharmaceuticals' offer.

Valeant's business model is focused on acquiring pharmaceutical companies and paring costs, notably in the research and development function. Investors have cheered that strategy so far, sending Valeant's shares up nearly ninefold over the past five years. Meanwhile, Allergan has been telling its shareholders that Valeant's acquisition-driven model is unsustainable, that its organic growth is essentially zero, and that dramatically reducing R&D would cripple future growth prospects. These arguments are relevant to a long-term investor's decision process, as less than half of Valeant's offer is in cash, with the remaining portion in Valeant shares.

Nevertheless, Pyott has not remained totally immune to Valeant's logic, telling the FT that Allergan will halt some early stage development programs in order to reduce its R&D budget.

Pyott refrained from identifying any specific potential acquisition targets, but analysts' recent speculation have centered on Shire, which is already the object of AbbVie's attention. The bottom line is this: investors who have urged Pyott to consider an acquisition are right. The sector is undergoing another wave of consolidation, and by striking now Allergan has a chance of remaining independent and proceeding on its own terms. As far as Valeant's offer is concerned, I think long-term investors ought to set a high bar -- the risks Allergan has identified are legitimate.

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers